Here I’ll tell you how to make a budget and why you need one ASAP. Making a budget can be a simple process and really beneficial for your personal finances and your journey to your financial goals. If your goal is to get out of debt or save money, you need a budget. When you have a budget, it is much easier to see what steps you need to take in order to live within your means. To live within your means you need to take in more money than you spend. So you need to keep track of your spending and know how much is coming in and going out. After you make your budget, you can see areas where you should cut back or where you should put more money. Like, if you eat at home more often next month, you can put that money toward your emergency savings fund. Once you get it set up and make it a habit to check it occasionally, you’ll learn how to make better decisions with your money and get closer to your financial goals.
To start your budget, list all your monthly income. If you have a regular paycheck, this is simple as you can just add together the paychecks you received for that month. If your income varies from month to month, for instance, if you work for tips or work a varied schedule, all the more reason you need a budget. In this case, you may not know exactly how much you’ll have coming in every month. With a budget, you can better prepare to cover your necessary expenses as best you can and save up for the things you want instead of spending your money before it’s earned.
Next list your regular necessary monthly expenses. This should include items such as rent, utilities, transportation, and groceries. Don’t forget to budget for things that occur less frequently but are still essential. This might include home maintenance, car insurance, and health care costs. If it is a yearly expense, divide by 12, if quarterly divide by 4, and add to your monthly budget so you have that money ready when the bill is due.
If you have children or plan to in the near future, you should include them in your budget. Expenses related to children might include medical expenses, education, food, baby sitters, furniture, and saving for their future.
List unnecessary expenses like eating out, Netflix, and that yearly gym subscription (divided by 12 for the monthly cost). Other categories to include are personal care items, hair care costs, and clothing. You can include a miscellaneous category to cover costs that don’t neatly fit into another category.
Don’t forget to include your pets. They come with expenses too, like food, trips to the vet, and lodging when you go out of town.
Include in your budget your debt payments. This might include credit card payments, car payments, and student loan payments. By budgeting and tracking your finances, you should avoid taking on more personal debt and work toward paying off what you owe. Getting out of debt is possible, read my post on this topic.
Include what you are putting into savings. If you are building up your emergency fund, that should be a priority over other savings. Read my post about why an emergency fund is so important.
Aim to save at least 10 percent or more of your annual income for retirement. Pay yourself first, or in other words, have it get taken directly out of your paycheck into your retirement account. That way you aren’t tempted to spend it. Read my rundown on retirement accounts and the power of compound interest to encourage you to save now.
You can also list specific things you are saving up for. Like if you’re saving for a new sofa, a vacation, a wedding you’ll be in next Spring, or a down payment on a house. This will help you calculate how long it will take you to save up the money or if you need to trim spending in other categories in order to save enough.
If you have more you can put toward savings you can invest it. This is better for the money you don’t need right away. So if you know you won’t be buying a house in the next few years, you can invest some of that money you have saved for your down payment. Keep track of that in your budget.
Giving back and tithing is so important. So don’t forget to include that in your budget.
What are you waiting for?
Why do you need a budget? It helps you see if you’re living within your means. It will help reveal areas of spending where you need to cut back. Consider, for example, how much you spend on housing. Thirty percent of your take-home pay is the standard suggestion. If you’re spending more than that a month, you might want to consider looking for a more cost-efficient place to live.
Budgeting helps you plan and save before you buy so you can avoid buying on credit and increasing your debt. When you have a budget, you can more clearly work toward your goals, whether that is to pay off debt, save for retirement, or just get a handle on your spending. It can be scary or challenging to see the hard to swallow facts in black and white, but you’ll quickly find that it is important and helpful. A budget can help you make more informed spending and saving decisions. Your money and your spending will no longer be a mystery. With a budget, you’re in control.
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